The next step is for it to receive the approval of MEPs in the European Parliament. There will soon be a clear and unified set of requirements for companies across Europe on environmental and human rights due diligence.
Companies within scope will be required to undertake due diligence of human rights and environmental impacts in their operations, those of their subsidiaries, and in the chain of activities of business partners. This is significant as it codifies into law various key elements of numerous frameworks and efforts over the past four decades. These include, but are not limited to, the UN Guiding Principles on Human Rights, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the International Labour Organisation (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and the Children’s Rights and Business Principles, amongst others.
One of the key features of CS3D is that it aims to bring together both human rights and environmental (including climate) impacts under the umbrella of a harmonised approach to due diligence. This overarching approach is in keeping with the 2022 recognition by the UN General Assembly of the human right to a safe, clean, healthy and sustainable environment. This holistic approach is needed for business to play its part in meeting the UN Sustainable Development Goals and the 2030 Agenda.
While the key thresholds for applicability in terms of net turnover and number of employees have been raised reducing the total number of companies which fall within scope, one can expect this might change in future. A good case in point is the lowering of the employee threshold to 250 in the Corporate Sustainability Reporting Directive (CSRD) from 500 employees in its precursor, the Non-Financial Reporting Directive (NFRD). As companies get to grips with complying the C3SD, one can reasonably expect a timely review of corporate practice and adoption. This could result in thresholds being changed to ensure that a critical mass is captured in future, that the impact of the CS3D is evaluated, and that it responds to evolving business practices and societal demands.
Earlier this year, the Special Rapporteur to the UN Human Rights Council released its report, Business, planetary boundaries, and the right to a clean and healthy environment. Of particular relevance here is the reference to the EU study whereby a mere 16% of companies monitor human rights and environmental impacts across their entire value chain. This is a key area of behaviour change which the CS3D aims to address. The Special Rapporteur commented that the "systemic failure of the vast majority of businesses to comply with voluntary human rights guidelines underscores the urgent need for mandatory legislation governing human rights and environmental due diligence in all jurisdictions." In Europe this day is here.
What does this mean for businesses? On the whole businesses welcome the fact that they will not have to navigate the EU on a country-by-country basis. However, given the size of fines for getting it wrong, there is a fervent hope that more attention, clarity and support will now be given to implementation. Business need to start looking at getting their house in order to meet this Directive if they have not done so already. In parallel, they need to be provided with practical advice and tools to make CS3D compliance easier. This could take the form of formalised and standardised due diligence questions as well as a one stop knowledge portal. Now is the time to move beyond discussing the approvals process of the Directive but to exploring how the CS3D will be implemented in practice. The investment in compliance for those who prepare now will be less and the costs of inaction are significant. It will only be a matter of time before those falling outside the current scope will be brought within the Directive's remit. And crucially those out of scope but within the global value chain of those companies within scope will be affected as they will be asked for information about their environmental and human rights risks and impacts.
To learn more about how ready C-Suite Business Leaders across Europe are for the Corporate Sustainability Due Diligence Directive, join us for our "True Diligence" launch on 17 April at our DWF London Office of our thought-provoking data-led market research on human rights and environmental due diligence. A paradigm shift in focus has become real. Let's issue in this new era of corporate sustainability together!
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